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Many of the big investors weighing Reddit’s initial public offering weren’t convinced by the company’s pitch in the weeks leading up to the listing, fretting about the firm’s lack of profits or uncertainty around big licensing deals for its data. But the doubts dissipated for many by the time Reddit’s bankers closed the deal, which valued the company richly compared to some competitors.

Reddit’s strong performance—as of Monday afternoon, its stock was up 63% from its IPO price—followed a bumper IPO by fabless semiconductor startup Astera Labs, whose stock has soared. That should perk up the hundreds of other venture-backed companies that have been waiting for a more forgiving market to go public. Colin Stewart, Morgan Stanley’s global head of technology equity capital markets and the banker who took Reddit public, said recent IPOs have sent a signal that investors are more open to taking risks on relatively unproven companies.

The Takeaway

• Colin Stewart, a top banker on Morgan Stanley’s tech IPOs, says Reddit and Astera debuts “usher us out of a sober, clinical market.” He added “There’s an appetite to be more risk-on.”

• Ibotta, Rubrik, Tempus Labs are some tech companies whose IPOs could happen soon, according to The Information’s reporting.

• Reddit stock is up more than 60% from its IPO price as of Monday afternoon.

“I believe the last two transactions usher us out of a sober, clinical market into a lean-in market,” he said in an exclusive interview. “The economy is stabilizing, and AI is a secular theme creating a lot of momentum.”

The change of sentiment in favor of a “lean-in market” would mean investors are willing to give companies credit for yet-unproven business lines when valuing them. “They believe the stories will hit,” Stewart said. (He said he couldn’t discuss specific deal conversations around Reddit or Astera Labs, citing securities laws, and he wouldn’t discuss other specific IPO contenders.)

Investors appeared willing to look past potential uncertainties for both Reddit and Astera Labs. One investor who spoke to Reddit during its investor road show said the company’s story on how it helps power both Google search results and artificial intelligence chatbots started to get traction with investors in the final days before the IPO, even though the business makes nearly all its revenue through advertising.

Morgan Stanley priced the deal at a level last week that would give Reddit an enterprise value of about $5 billion, excluding cash, putting it at a premium to chat app Snap and only a slight discount to social media firm Pinterest, based on a multiple of next year’s expected revenue. Investors still jumped in, and traders sent Reddit’s stock multiple past Pinterest’s and near Meta Platforms’.

Astera Labs, meanwhile, generated nearly all its $115 million in revenue last year from just three customers. It is also much smaller than other tech firms that have gone public recently. Bankers last Tuesday priced the deal at a slight discount to where chipmaking giant Nvidia trades, based on a multiple of next year’s expected revenue. Astera Labs’ stock price has since more than doubled.

Privately, some IPO investors say the new valuations defy financial fundamentals. One investor who bought Reddit shares in the IPO deal said the trading up of the stock got to a level of “silliness.” Stewart was less blunt. “There’s an appetite to be more risk-on,” he added.

The shift in attitudes should put more of a spotlight on the IPO pipeline—the list of companies going through the drawn-out ritual of picking bankers, drafting regulatory documents, picking board members and meeting with investors. (See our Tech IPO Tracker for a full rundown.)

Stewart keeps an annual list of U.S. tech IPOs he thinks are likely to happen because the companies have already started the process. This year’s list had 25 to 30 names on it, he said, which would be far more than in the past two years, but fewer than in each of the five years before that. (Not all of those will go forward, he added, as companies lose key executives or face business uncertainties.)

A shortlist of companies appears to be lining up to take more immediate advantage of the favorable climate for IPOs. Ibotta, a couponing startup backed by Walmart and venture capital firm GGV Capital, made its IPO filing public Friday, indicating it could go public next month. Rubrik, a Greylock Partners–backed data storage startup, has been meeting with investors about going public, while healthcare tech company Tempus Labs has also been eager to get out the door, people familiar with the matter said.

“For IPOs that are on file and have been in execution, this could change people’s temperament around that timetable,” Stewart said.

Another factor bolstering companies’ confidence: Two of the three other companies that went public last fall have traded well lately. Instacart is trading about 26% above its IPO price, after a slow start, while Arm is up to nearly three times its IPO price. (Marketing tech firm Klaviyo is still trading below its IPO price.)

However, a longer list of highly valued venture-backed companies, including fintech Chime and chat app Discord, are preparing for 2025, investors, lawyers and bankers told The Information. Many of those companies have only recently started making progress toward generating profits or have faced unexpected sales slowdowns, halting their IPO preparations.

“A 50% to 60% grower is now a 20% to 30% grower. They’re asking: ‘Is 20% to 30% a new normal for me?’” Stewart said. However, he added, many enterprise software companies that are planning for 2025 IPOs now “feel a lot more confident they’ve reached a turn and business momentum is better.”

Last week’s listings may not accelerate those IPOs, Stewart said. “Unless you’ve been out meeting investors, you’re probably not turning on a dime,” he said. The U.S. presidential election in November, which may spark more gyrations in stock prices, also may push out companies to 2025. “My guess is it’s a gradual buildup, with a pause around the election.”

Many startups with direct ties to the generative AI boom have seen soaring revenues but may not be mature enough yet to go public, Stewart said. More likely to head to the front of the line are companies selling the “picks and shovels” to AI companies, such as chips, data center storage and data labeling. “There’s a lot of stuff on the infrastructure side that will [IPO] earlier,” he said. But many of those firms most in demand, such as Scale AI, Vast Data and CoreWeave, have all sought to raise money privately in recent months, according to The Information and other reports.

The recent IPO dry spell came during a strange moment for the private and public tech investing markets. The Nasdaq Composite stock market index is at an all-time high, up 11% from the start of the year, despite stubborn inflation. Investors have bet advancements in artificial intelligence will continue to boost chipmakers and big tech firms. But investors still aren’t certain when the Federal Reserve might lower long-term interest rates, which would bolster their appetite for loss-making companies.

Complicating matters even further, startups that should be close to IPOs have been cautious recently. They’re flush with cash and sensitive about preserving their previous valuations. For a handful of particularly large, buzzy private tech companies—including payments firm Stripe, enterprise software firm Databricks, rocket company SpaceX and design software firm Canva—private investors have been willing to keep pumping in money to allow employees and others to cash out shares without an IPO.

While those companies haven’t needed to go public to satisfy employees’ and investors’ demands to start cashing out their shares, another need might push the businesses toward an IPO, Stewart said. “At some point, it may be that they need to do acquisitions, and acquisitions at a larger scale that may not want stock but may want cash,” Stewart said. “Then they may start to tap out the private markets from a capital perspective.”